If you have a lot of debt that is hard to handle, you may have considered filing for bankruptcy and you’re wondering how to file for bankruptcy. Bankruptcy is a big decision, and you’ll want to really think on it before making that choice. It can have a huge effect on your credit and report, so you’ll want to do your research. Luckily, LoanMart is here to help.
Deciding to File for Bankruptcy
Before you file for bankruptcy, you will want to consider all of your options and research all your financial information before starting.
- Consider your options. Bankruptcy should be used as a last resort. Before you file, you want to check off your available options to see how you can pay off your debts. Contact creditors to try and negotiate for a loan settlement or a repayment plan that gives you lower payments. You can also short sale assets to cover your debt if you are underwater on a loan. Consult with a debt management agency before deciding to file.
- Analyze your debt. There are certain kinds of debt that can’t be “erased” even if you declare bankruptcy. If a majority of your debt can’t be erased, then bankruptcy might not be an option for you. Each state has specific provisions for assets which are exempt from bankruptcy. Check your state law. Debts like these cannot be discharged:
- Child support
- Debts filed after bankruptcy
- Debts incurred six months prior to filing bankruptcy
- Fraudulent loans
- Debts from personal injury driving intoxicated
- Debts from willful and malicious injuries to people/property
- Some student loans
- Some taxes
- Secured loans
- Know which assets are exempt. During bankruptcy, proceedings will seek to seize and sell your valuable assets to repay creditors. Exempted assets will depend on variables like the state you live in and which type of bankruptcy you’re filing for. They can be protected up to a certain value or entirely. Common assets are:
- Cars, wedding rings, and your home
- Some state offer “wild card” exemptions that allow you to keep other valuable assets to a certain value
- Chapter 13 Bankruptcy: allows you to keep your assets, but you can reduce your liability to creditors by selling assets of significant value.
- Understand bankruptcy and cosigners. A cosigner agrees to pay your debt in the event you can’t. If you declare bankruptcy, a cosigner is still obligated to repay your debt.
- Learn about the different kinds of bankruptcy. Bankruptcy is handled in federal court under the rules of the Bankruptcy Code. There are many different chapters:
- Individuals and business may file for Chapter 7.
- Chapter 13 is known as “wage earner” bankruptcy. If you have a reliable income, you can propose a payment plan to creditors that pay them back.
- Cities, towns, villages, taxing districts, municipal utilities, and school districts under Chapter 9.
- Business can reorganize under Chapter 11 or liquidate under Chapter 7.
- Chapter 12 is similar to Chapter 13. It is reserved for business where 80% or more debt is from operation of family farm or fishery.
- Understand the consequences. Learn about the kinds of debt that can be erased and what will be forgotten. It’s important to recognize the impact on cosigners of your loans, too. You have to decide if you’ll want to live with the negative impact bankruptcy has on your credit.
- The effect bankruptcy has on your credit is largely determined by how good your credit is to start. If you have good credit, it will take a huge hit, but if it’s already low, it might not lower your score much.
- The more accounts you have associated with filing, the bigger the impact is on your credit.
- If you file Chapter 7 or 11, it will remain on your credit for up to 10 years. With Chapter 13, it may stay on for up to seven years.
- Chapter 11 will stay on the business’s credit report, not the person, unless they file a personal bankruptcy.
How to File for Bankruptcy
Which bankruptcy you file for will all determine on your situation. Here 2 of the more common chapters and how to do it.
File for Bankruptcy – Chapter 7
For Chapter 7 bankruptcy, consider hiring a bankruptcy attorney. It is a complicated process and is rarely successful without help. There are free services that you can apply for. Then, you’ll want to find out if you qualify. Your income must be below a certain level and take the “means test” to find out if you qualify. It is a complete series of three forms to take it.
Fill out the forms once you know you qualify with all your property, debt, income, and expenses for court. There are other forms, as well, like the bankruptcy petition, a series of schedules, and more. File the forms and if you’re using an attorney, they’ll file them for you.
File for Bankruptcy – Chapter 13
To file for Chapter 13, make sure you evaluate your eligibility. Business can’t file for Chapter 13, even if you are the sole proprietor. You have to have a certain amount of disposable income and your debts can’t be do high. You do not qualify if your secured debts exceed $1,149,525. You also must be current on your income taxes and prove that you filed your federal and state income taxes for the past four tax years.
The forms for Chapter 13 are the same forms as Chapter 7. In your case, a trustee will be appointed to help you fill out your information on the forms. If you feel like you’ll need representation, you could hire an attorney.